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Progressive's telematics device which plugs into the car dashboard (Photo courtesy of Progressive).

Suppose you're a pretty good driver. You don't speed. You keep your distance, and you rarely venture out late at night. You may be a perfect candidate for a telematics device. Like an airplane's black box, the gadget gathers second-by-second data about the car's operation and allows an insurance company to offer lower prices for safe drivers.

Conversely, consider the speed demon. He likes to drive at night, brake quickly and test the limits of his vehicle. He, too, can install a telematics device in the dashboard from an insurer like. Until now the U.S. telematics pioneer has not penalized poor drivers using the device. Soon, it will.

"Next year we will likely move to a model where we can offer a discount to more people. Some, maybe 80% of the people, will get a discount, but then some people will actually pay a little more," said David Pratt, Progressive's general manager of usage-based insurance. The company will cap the surcharge perhaps at 10% of the cost of the policy, he said. "If nobody pays more, you still are forced to pay for the bad driving" through higher premiums overall.

Businesses of all kinds routinely capture customer information and often resell it without explicit permission. The customers usually get nothing in exchange. By contrast, telematics insurance offers a choice with real benefits. Since Progressive (which doesn't sell the data) began offering its first monitoring devices in 1998, the program has grown to $1.8 billion in annual premiums, or 10% of company revenue. More than 1.4 million drivers have tried the program, and roughly one-third of new customers opt in. About two-thirds of those who opt in end up getting a discount, typically $150, about 10% or 15% of the cost of the policy. Other U.S. insurers, including State Farm and , have introduced telematics insurance, and 2 million European drivers have chosen to go this route, according to Jacques Amselem, CEO of Telematics, which sells in ten European markets. By 2017 the number of monitored drivers worldwide will rise to 89 million, up from 1.85 million in 2010, according to ABI Research.

So far insurers have not wanted to alienate early adopters with penalties, but they will soon have to in order to subsidize the equipment, service and discounts for the safer drivers. "Bad drivers will at some point need to improve their driving or accept [having] to pay for the real risk they represent," said Amselem. Bad drivers obviously would never knowingly sign up for higher premiums, but people tend to misread their own road skills. "Not all who consider themselves good drivers really are good drivers," said Amselem.

Mechanic installs an Insure the Box telematics device into a car (Photo courtesy of Insure the Box).

British insurer Insure the Box takes no chances. Its policies require a professionally installed recorder that stays in for the duration of the policy. It captures dozens of data points, including whether the space to the side of the vehicle is occupied or the car has suddenly rotated. With annual premiums in Britain averaging $3,600 for 17- to 21-year-olds, the box can save a good driver about $1,500. The company has 100,000 customers. CEO Mike Brockman finds, however, that bad drivers tend not to sign up. "If we do see young males driving what might be deemed recklessly, we do not cancel the policy, but we offer them a free day at a driving school to get the message across that cars are dangerous vehicles which can kill people, including themselves." That may be the most powerful data point of them all.